Health Savings Accounts are not
actually
products, per se: they are concepts. An HSA is simply an
insurance
plan which meets the federal government guidelines that the plan must
be
a high deductible, non-co-pay plan, sold as an HSA-compatible policy.
You cannot take an existing policy and turn it into an HSA-compatible
plan
if it was never sold or applied for that way. HMOs cannot be HSAs as
they
are co-plans. You cannot start a savings account at the bank and
earmark
it for medical expenses and call it a health savings plan. A plan that
is a high deductible plan does not qualify as HSA-compatible unless it
specifically states that it is. And many people who buy HSA-compatible
plans never set up an HSA account at all - they just like the premiums,
which generally are lower than for plans that offer co-pay benefits.
So, setting up the savings account is optional.

Formerly known as an MSA (Medical
Savings
Account), the HSA (Health Savings Account) is a savings account created
and used specifically for the paying of medical expenses in conjunction
with a health insurance policy. Such expenses are not limited to what
your
medical policy covers, but also include optical, dental, chiropractic,
day care and long term care expenses…. any expenses considered
medically
allowable by the IRS.

HSAs offer tax benefits to not just the
self-employed but everyone, and is treated much like an IRA for
purposes
of tax-deferred savings, tax-exempt interest and early withdrawal
penalties.
Money remaining in your account at the end of the year automatically
rolls
over into the next year, enabling your HSA to grow. This is your
money.

Several carriers offer HSAs: these are
high deductible plans offered in conjunction with an insurance policy.
You can choose a pure indemnity program (go to any doctor, anywhere) or
the more prevalent PPO (using a network provides greater first-dollar
savings
on your medical expenses as well as lower premiums). These are not
co-pay
plans: you pay out-of-pocket and those expenses, usually reduced by
your
PPO, count toward the deductible and coinsurance, if applicable.
Underwriting
for an HSA-compatible insurance plan is the same as for any other
helath
insurance product.

Depending on the carrier, individuals
generally
have a choice of several deductibles, ranging from $1500 to $6,850 for
individuals and from $300 to $13,700 for families (in 2016 - the
deductibles go up every year). With family deductibles, everyone on the
plan
contributes
to one common deductible rather than each family member having to meet
their own deductible. Some carriers actually offer the option of
embedded
deductibles, whereby if one family member meets half the family
deductible,
benefits are then payable at 100% for that family member. The concept
of
a combined family deductile alone makes many families turn to
HSA-compatible
policies for their coverage, as it keeps their out-of-pocket expenses
significantly
lower in the event of major services. Depending on your carrier, your
plan
may offer 50/50, 80/20 or - most popularly - 100% coinsurance following
your deductible. This is the second feature that individuals and
families
like - 100% coverage once - and if - a deductible is met.. It is not
clear as to how many carriers will offer HSA-compatible plans in AZ in
2017.

How an HSA-compatible plan works:
you cover your
medical
expenses (usually subject to network discounts, whether PPO or HMO), up
to your deductible amount, and you may
take
this money out of your medical/health savings account, tax-exempt, to
pay
them. In order to recognize this tax benefit, you must have money
in a qualified health savings account. There is no requirement
that
you contribute any specific amount in any specific timeframe - you
don't
have to even set up this account if you don't want to, it simply offers
tax benefits if you do. However, you cannot set up a health savings
account at a financial institution unless you have an HSA-compatible,
fully-compliant health insruance plan. You must have a qualifying
insurance
policy.
You cannot "convert" a non-HSA-compatible plan into an HSA-compatible
plan.

To an HSA account, a single person can
contribute
up to $3350 per year and a couple/family can contribute up to $6350,
regardless
of deductible. (The IRA raises these amounts a little bit each year.)
Again,
these are guidelines (which can change every year), and not
requirements. If an
individual or family member is age 55 or older, they can contribute an
additoinal $1,000, called a "catch-up contribution."

Deposits to an HSA are tax exempt, like
contributions to any other IRA. If you are self-employed, you know
there
is a "cap" on how much you can contribute to a SEP-IRA every year. The
HSA was a boon to the self-employed as it received the same treatment
by
the IRS as an IRA but does not count towards your IRS contribution
"cap"
- it is over and above that limit! The recent legislation regarding
HSAs
is even more of an improvement. You do not have to be self-employed to
have this kind of insurance or account.

You may not pay your insurance premium
from your
HSA
account, and your premiums do not gwe credited to your HSA account.
Conributions are separate from your premium and totally voluntary. The
only premium that you can pay from an HSA account is for long term care
plans.

With an HSA, money withdrawn from
the
account for medical expenses is tax-exempt. Instead of having to gross
$140 in order to net $100 to pay for a $100 doctor visit, as you would
do with a conventional plan, your $100 gross pays for the $100 doctor
visit.
This is a savings of $40 in that you would have had to have earned that
much more, before taxes, in order to pay out $100, after taxes.
Only
HSAs allows for this tax savings.

The average consumer goes out-of-pocket
a fair amount every year paying for expenses that a health plan may not
cover, such as prescription glasses, contacts, dental, durable medical
equipment,
nursing
homes, birth control, chiropractor, RK, certain vaccinations.... and
with after-tax
dollars. With an HSA, those expenses would be paid for with your
pre-tax
dollars, regardless of what your health plan does or does not cover.
(If
the IRS allows it, it may be paid through the HSA account.)

Many HSA policy holders leave the money
in the account, contribute the maximum allowed every year, and then
don't
use it at all, preferring to let it grow tax-deferred to age 65. Once
you
have reached age 65, the HSA functions like an IRA – you can withdraw
the
money at any time for any reason, paying only normal income tax on the
amunt withdrawn. The
interest
on an HSA is likewise not taxable unless the money is spent on
non-medical
expenses;
then you will pay tax on the interest, as well.

If you have an HSA for seven or eight
years
then cease to have that carrier's policy, you can keep the money
already
contributed in the HSA account and continue to withdraw from it,
tax-exempt,
for medical expenses, but you can no longer contribute to it. You can
also
simply let it sit and continue to earn interest, like any other IRA,
to age 65. If you "break" or "cash out" the IRA, you will pay the same
penalties and losses as you would for any other IRA. At age 65, money
in
a HSA can be used to pay for services not covered by Medicare, such as
long term care, medical or prescription co-pays, etc.

When considering an HSA, keep in mind
all
the tax-exempt and tax-deferred savings that cannot be recognized with
any other type of medical insurance plan. You have the potential to
save hundreds to thousands every year, and your
out-of-pocket
is still limited to your deductible (and coinsurance, if and where
applicable)
– usually paid for with pre-tax dollars.

*Items not
normally
covered by your insurance plan but considered to be medical expenses by
the IRS (such as those items listed above) do not count toward your
health
insurance deductible but still qualify for payment through the
tax-exempt
HSA-savings account dollars.